Rising automation and its impact on the IT industry

The advancements in technology transformed repetitive human processes into cost-effective tasks, rapidly performed by machines. The fundamental purpose of technology is to improve productivity, generate increased or better quality output and reduce cost. The increase in productivity not only increases the overall growth, but also influences living standards, consumption and income per capita. The labour productivity and Gross Domestic Product (GDP) often reflect the advances in output since productivity is difficult to measure. While world GDP has enormously risen in the past century, technology intertwined with the global economy.

In past three centuries, there were three waves of automation, however, in this new era, automation and artificial intelligence (AI) have invoked a deep fear in society and can potentially replace both blue collar and white collar jobs. The computing power and storage capacity increased exponentially with the passage of time. In addition, big data and AI are not only automating routine tasks but complex decision-making formerly forte of professionals.

The IT industry, which has been promising and grew substantially in the past three decades is facing a greater risk of automation. According to the HfS research, the IT industry globally may encounter a net decline of 9% in the headcount or about 1.4 million jobs, with countries such as the Philippines, the UK and the US taking a hit in the process. The report although states that ‘low-skilled’ jobs will fall by 30%, ‘medium-skilled’ jobs will increase by 8% and ‘high-skilled’ jobs will rise by 56%.

While the high skilled jobs in analytics and AI are increasing, a loss of low-skilled jobs is a major concern for developing Asian countries such as India and the Philippines. Additionally, most major IT firms are restructuring their resources often leading to forced exits. Moreover, apart from layoffs, fresh hiring and entry level jobs have also slowed down considerably in the past year. India is expected to lose 0.6 million low-skilled jobs due to automation in the upcoming five years. Although the Indian IT industry body NASSCOM is positive on automation, few early warning signals are already visible.

The employee growth rate has slowed down for almost all the major IT firms and this is expected to turn negative. At the same time, employee utilisation has increased as the companies are increasingly focusing on re-skilling the workforce and driving productivity. While the revenue per employee increased owing to automation and increased employee utilisation, the EBITDA levels have remained similar or declined due to hiring or re-skilling of resources for automation of technologies.

The IT industry is still adjusting to the heightened risk of automation, the protectionist policies of the developed countries have further impacted the growth and margins. Furthermore, with countries such as the US, Singapore and Australia changing their employment VISA requirements, IT firms in these nations are finding difficult to hire cheaper resources from developing nations. Thus, local hiring is the only option and this often leads to high costs.

The stories of automation displacing jobs have always frightened the workforce, especially since the advent of machinery. However, technology created more efficiency, productivity and even higher living standards. For instance, in the past, in the 1800s, 90% of Americans worked in farms and presently, this is less than 2%. Yet there has been no mass unemployment in the history apart from the great depression and the 2008 recession. While several recent developments in automation and AI have threatened to upend skilled labour, human relationships will always remain fundamental in numerous industries. There will be the loss of jobs due to technological innovations, but there will be job creations from evolving business models and for survival in such scenario employees must learn, unlearn and re-learn.

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